Saturday, April 7, 2012

AARP Wants Permission To Ask For Benefit Cuts

AARP's repeated efforts to cut Social Security and Medicare benefits demonstrates that they have little understanding of the issues involved. Not only have they bought into conservative's lies, they are acting contrary to the interests of the people they claim to represent.

There are a few changes that Medicare needs. One such change is permission for drug price negotiations, rather than having to pay whatever prices the pharmaceutical industry asks. The Medicare payroll tax is very low, and could be bumped up a bit with little impact on paychecks. What we really need is Medicare for all. Private health insurance has administrative costs that are usually 20% or higher, and deductibles, co-pays, benefit limits, and doughnut holes make that insurance more like a very costly limited value coupon.

As for Social Security, the only change which should be made is to raise the cap at which payroll taxes are taken out (the cap should not be fixed, but should be indexed or removed), and that is only to insure full benefits past the next 25 years. It is also worth noting that very little of the income of the wealthy is subjected to payroll taxes, while most if not all of the income of middle and lower income workers is.

Raise the retirement age? You have got to be kidding. Social Security is fully funded for 25 years at current retirement ages. Will you penalize future retirees because of lies? And get rid of the payroll tax holiday and stop mixing our retirement insurance payments with general revenues.

Social Security accounting is separate by law, and in fact is counted as an off-budget item. The trust fund holds special Treasury Bonds, bought whenever there is more collected in Social Security payroll taxes than is paid out in Social Security benefits. Those bonds fund part of the national debt, to the tune of $2.6 trillion. (Yes, those paper IOU's in the Trust Fund are actually U.S. Treasury Bonds, backed by the full faith and credit of the United States.)

When Social Security pays more in benefits than it collects in payroll taxes, it cashes in some of those treasury bonds. The Treasury Department is able to pay for those special Treasury Bonds by selling regular Treasury Bonds (say, to China).

Treasury Bonds are what fund the national debt (and have since the 1917 sale of Liberty Bonds). Since Social Security's special Treasury Bonds are only redeemed at the same time that new regular Treasury Bonds are sold, and money given to Social Security for redeeming the special bonds is offset by money from the sale of regular bonds, there is no change in the national debt. Thus, even if Social Security is running a deficit for the current year, there is no impact on the National Debt (and no change in how close or how far that actual debt is from the current debt ceiling).

Furthermore, even though Social Security is projected to have deficits for the forseeable future, the $2.6 trillion Trust Fund will insure that Social Security is able to pay out 100% in benefits for the next 26 years, and is able to do so with no changes in retirement ages and no changes to benefits. (The upcoming retirement of Baby Boomers was foreseen, and is the reason the Trust Fund was built up to such a large amount.) In fact, any changes to retirement ages or benefits would have absolutely no impact on the National Debt. Raising retirement ages or cutting benefits will only have an impact 26 years from now, and would still only affect Social Security benefit payouts, not the National Debt.

For more on AARP's current activities, and links to register your opinions on these issues, check out FDL (

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